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FedEx Is Positioned for Long-Term Growth

FedEx' strong fundamentals should help it sail through tough times.

I recently wrote about FedEx(NYSE: FDX)doubling its third-quarter profits. Sure, the company has been performing well, but there are caveats, too. Here is a quick analysis of FedEx and its business environment.

Strengths

Good finances: FedEx has little debt on its books. With a debt-to-equity ratio of 10%, this company looks lot lighter than bigger competitor United Parcel Service(NYSE: UPS), which has a debt-to-equity ratio of 157%.

Growing ground business: FedEx's ground shipping business now accounts for over 20% of its annual revenue. Not only has this segment seen considerable growth in the recent year (with people increasingly using cheaper shipping facilities), it also operates at a margin of 15%, which is significantly higher than the operating margin of its other segments.

A push from e-tail: FedEx continues to benefit as online shopping picks up, thanks to companies like Amazon.com(Nasdaq: AMZN) and eBay(Nasdaq: EBAY). Fedex and UPS are the two primary delivery companies for these online giants and stand to gain in a big way from their rapid growth.

Bottom-heavy: Net income during the past year (February 2011 to February 2012) grew at an impressive 55%, reflecting strength in its business divisions.

Shift to fuel efficiency: FedEx has ordered more fuel-efficient aircraft from Boeing in a bid to curtail costs. This is expected to improve the company's operations and margins in the long term.

Emerging options: High-growth nations such as India and China, where the package delivery business has not been able to gain a strong foothold yet, pose an excellent opportunity for FedEx.

Threats

Global slowdown: FedEx and other package delivery companies act as a barometer for the economy. This also means that recessionary conditions can spell disaster for such companies. On a different note, potential investors expecting a high growth rate from countries such as China need to be cautious given its recent economic slowdown.

Fuel costs: Rising fuel costs have crimped FedEx's already-thin margins. This is a real cause for concern. For instance, at the end of the company's financial year in May 2011, FedEx's annual revenue grew by 13%, while fuel expenses increased by a whopping 34%.

The Foolish bottom lineInvestors need to keep a close eye on competition and rising fuel prices. However, I still think the company is positioning itself for long-term growth, and its strong fundamentals should help see it through. FedEx has bagged a coveted four-star ranking from our Motley Fool CAPS community. Keep track of the company by adding it to your Watchlist, our free and personalized stock-tracking service. Click here to add FedEx to your Free Watchlist.